In accordance with “Business Tax Act”, the prize which is purchased to reward the employees is not allowed to be listed as input tax to offset the output tax. A majority of Taiwan companies usually provide the employees with dinning party, lucky draws the welfare of these kinds, but the nature of these welfares is affiliated with rewarding to the employees, which means the input tax cannot be offset.
For instance, company A held a year-end party on December in 2020 and purchased a variety of prizes for luck draws. The company declared the offset of input tax to output tax incorrectly, which made this company suspicious of illegal declaration intentionally by Taxation Bureau in Taiwan. In this case, the company not only had to recover the amount of taxes, but also faced the punishment of being fined no more than five times the amount of tax evaded.
According to “Income Tax Act”, the obtained prizes from lucky draws for employees shall be withheld the amount of taxes in 10% pursuant to “Income Tax Act”. But if the deductible amount of taxes is less than or equal to NTD2,000, the application of withholding can be exempted, but which is still needed to proceed the declaration of withholding on January of the next year. On the other side, in the circumstance that the winner is not a resident within the territory of Republic of China (such as a foreign employee who stays at Taiwan less than 183 days in one year), the 20% of winning bonus shall be submitted the application of withholding and the company shall submit the withholding tax statement in 10 days, no matter how much the winning bonus is.
For instance, an employee in company B wined a motorcycle with the value in TWD70,000 by lucky draw. The company shall proceed the application of withholding in 10% rate by prescribed regulations, which withholding amount is TWD7,000. To individuals, the employee shall take the TWD70,000 prize into computation of the gross consolidated income in the declaration of individual income tax and deduct the TWD7,000 withholding amount from the tax payables.
Disclaimer
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
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